RBS faces losing £400m in Madoff 'fraud'

Published on Monday 15 December 2008 21:22

ROYAL Bank of Scotland found itself at the centre of a fresh financial crisis last night when it emerged that the Scottish banking group could lose up to £400 million from the collapse of the Madoff financial empire.

RBS has had a torturous few months, culminating in its part-nationalisation by the Treasury to prevent the bank from going under.

But just when employees hoped that some stability might return to the bank, the $50 billion American Madoff hedge fund was put into the hands of receivers following the arrest of Bernard L Madoff, who ran the fund. Madoff is accused of running a fraudulent "Ponzi-style" scheme that simply paid off previous investors with the investments of new clients.

If, as some analysts were warning last night, most of $50 billion fund has disappeared, then RBS may have to write off its entire involvement with the Madoff fund, dealing a further blow to its finances.

RBS was not the only bank to be caught up in the scandal, however. Spanish bank Santander, which owns Abbey and the savings business of Bradford & Bingley, said its potential exposure was more than 2 billion, while HSBC could reportedly lose up to 668 million. France's BNP Paribas and Japan's Nomura Holdings were also heavily involved in the fund.

Madoff, 70, a well-respected investment manager and former chairman of New York's Nasdaq stock exchange, was arrested last week after apparently telling his employees his operations were "all just one big lie".

Questions were being asked last night about the failure of the American regulators to check Madoff's business model, while some analysts warned that confidence could be undermined in the entire hedge fund industry.

Meanwhile, David Cameron, the Tory leader, warned yesterday City workers whose fraudulent acts triggered the credit crisis should face a "day of reckoning".

He called for executives to be prosecuted if they were found guilty of wrongdoing after a thorough investigation into the causes of the financial turmoil.

The Conservative leader's demand added to pressure on workers in the financial services industry. It followed an invitation from the Serious Fraud Office for shareholders and staff, both current and former, to come forward with information on suspected fraud.

Mr Cameron said that the culprits behind the current near collapse of the economy had to be held accountable. "Doctors who behave irresponsibly get struck off. Bankers who behave irresponsibly should face professional consequences," he said.